With the return of Donald J. Trump to the US presidency, economists and investors are weighing how his policies might shape critical areas like interest rates, inflation, and the housing market. Trump’s first term and current proposals, combined with his vast investments in real estate, give some clues about what the future might hold for these sectors. Let’s take a closer look at what his policies could mean for the economy.
Key Points
What Will Happen To Interest Rates With Trump As President?
Donald Trump’s economic proposals have the potential to influence interest rates significantly. His plans to cut corporate taxes and impose tariffs could impact the economy in ways that affect interest rates—an essential factor in the housing market’s performance. Although the Federal Reserve ultimately controls interest rates, Trump’s policies could sway these decisions indirectly.
Economists like Mark Zandi, chief economist at Moody’s Analytics, have noted that even discussions around Trump’s economic agenda can push mortgage rates higher, illustrating the sensitivity of financial markets to policy changes. Under Trump’s first term, mortgage rates showed some notable movement:
- 2017: 4.03%
- 2018: 4.54%
- 2019: 3.94%
- 2020: 3.11%
Trump’s proposed combination of corporate tax cuts and universal tariffs could heighten inflation expectations. Historically, rising inflation has pressured the Federal Reserve to raise interest rates to prevent the economy from overheating. This, in turn, can lead to higher mortgage rates, affecting borrowing costs for homebuyers.
Why Do Economists Believe Trump Will Cause Inflation To Rise?
Many economists caution that Trump’s policies could lead to a significant increase in inflation. Several aspects of his platform are seen as inflationary, including proposed tariffs on imports, restrictions on immigration, tax cuts in a tight labor market, and attempts to influence Federal Reserve policies.
The Peterson Institute for International Economics projects that Trump’s economic proposals could significantly raise consumer prices by the second year of his second term. According to their analysis, if Trump’s policies were implemented, inflation could surge to between 6% and 9.3% in 2026—well above the anticipated rate of 1.9%.
How Did The Housing Market Fair During Trump's First Presidential Campaign?
Trump’s first term brought a range of outcomes for the housing market. While some of his policies created favorable conditions—such as lower mortgage rates—others, like the SALT cap, posed challenges for certain homeowners. Significant trends during Trump’s term included rising home prices, declining mortgage rates, and a boost in new home construction.
Home Prices: From January 2017 to January 2021, home prices jumped from $228,900 to $303,900, marking a 32.8% increase. This was largely driven by the availability of low-interest mortgage loans, which spurred demand for home purchases across the nation.
Mortgage Rates: During Trump’s first term, the 30-year fixed-rate mortgage rate dropped from 4.14% to 2.65%, making loans more affordable and boosting demand in the housing market.
New Housing Starts: Construction activity rose significantly during Trump’s time in office. According to the US Census Bureau, new housing starts increased by 27.4% from 2017 to 2021, driven by favorable economic conditions and efforts to ease certain regulatory barriers.
Are Trump's Economic Policies Favorable For The Housing Market Or Not?
Ultimately, Trump being elected as US president is likely to cause a few changes in the market that form a mixed outlook. Higher inflation expectations could lead to rising mortgage rates, which may cool demand in real estate as financing becomes more expensive.
On one hand, his proposal to deport undocumented immigrants could negatively impact the housing sector’s ability to meet demand, as undocumented workers play a vital role in construction and maintenance, crucial areas for expanding housing supply. Additionally, Trump has shown interest in opening federal lands for housing development to alleviate the housing shortage and affordability crisis. However, only a limited portion of federal land is viable for development, limiting the potential impact of this measure.
Economic concerns also arise with Trump’s proposed tariffs, including a possible 60% tariff on Chinese imports and 10-20% tariffs on most other goods. A recent working paper from the Peterson Institute for International Economics cautions that if these tariffs trigger retaliatory measures, they could lead to higher inflation and slower GDP growth, potentially dampening the housing market by increasing construction costs and putting pressure on borrowing rates.
One of the most contentious aspects of Trump’s policy agenda is his stance on the $10,000 cap on state and local tax (SALT) deductions, a measure he supported in the 2017 Tax Cuts and Jobs Act. Though this cap is set to expire in 2025, Trump has expressed interest in ending it sooner. Removing the SALT cap would reinstate valuable tax deductions for homeowners, particularly in high-tax states, potentially boosting affordability in these regions.
To address housing affordability, Trump’s platform also proposes tax incentives and support for first-time buyers, aiming to make homeownership more accessible. Taken together, these policies offer some support for the housing market but are tempered by trade and labor measures that could raise costs and constrain supply, creating a complex landscape for future homeowners and investors.
How Much Property Does Trump Own, And Could This Have Any Bearing On His Economic Policies?
Trump’s extensive real estate portfolio includes hotels, golf courses, and other commercial properties. While it’s hard to determine the exact value of his assets, Forbes recently estimated Trump’s net worth at $7.5 billion as of May 2024. Some of his most prominent holdings include Trump World Tower, Trump Tower, Trump Palace, Trump International Hotel & Tower, and 1290 Avenue of the Americas. Trump’s real estate assets alone are valued at around $1.1 billion.
While Trump’s personal investments in real estate may inform his perspective on the housing market, it’s unlikely they directly shape national policy. Policy decisions are generally influenced by a range of economic considerations and legislative dynamics. However, Trump’s views on real estate could still impact his policy priorities, particularly in areas like tax structure, deregulation, and support for real estate investment.
